FORWARD CONTRACT CHANGES

Effective April 1, 2005 changes have been made to the Forward Contract. 

(1)   The contract will require 150 lambs / week, with the option of shipping 200 lambs / week, provided bookings allow for this increase. 

(2)   Forward Contract price will be calculated using a 2-month rolling average (instead of a 12-month rolling average) of the live weight of the high price for 80 – 94 lb. lamb at four markets, converted to a dressed weight price with differentials calculated into the equation.  A floor price of $2.3809 / lb. d.w. ($125.00 / 52.5 lb. lamb indexing at 100) and a ceiling price of $3.0476 / lb. d.w. ($160 / 52.5 lb. lamb indexing at 100) will be implemented such that the contract price will never go below or above the floor and ceiling price respectively.  A step-by-step example of how the price is calculated follows.

(3)   Overweight Penalties:  Holly Park requires that lambs that are shipped must meet the program specs of 50 - 55 lbs. d.w., and penalties as follow will apply to any animals that dress at 60.5 lbs. or greater.

60.5 – 61.9 lbs.          $5 penalty
62.0 – 62.9 lbs.          $10 penalty
63.0 – 63.9 lbs.          $15 penalty
64.0 – 64.9 lbs.          $20 penalty
65.0 lbs. +                  $35 penalty; if greater than 25% of the
                                     load are 65.0 lbs. +, a flat rate of $100 will
                                     be paid for each lamb that weighs 65.0 lbs. +

If a load of lambs averages more than 60.5 pounds, then $10.00 will be deducted off the price of each lamb in that load, regardless of individual weights.

Price Calculation

1)     The base price for lambs is set on a monthly basis using a rolling live weight (LW) average of the 80 – 94 lb. lamb (high price quoted from the previous month’s stockyard sales for Brussels, OLEX, Embrun and OSI), less $10. 

I.e. March 2005: 
Weighted average of the high price for these 4 markets = $150.43 / 100 lb.
Therefore: Base price = $150.43 - $10.00;    
Base price = $140.43 / 100 lb.  LW 
 

2) The Base Price is converted from a LW basis to a dressed weight (DW) basis assuming a 100 lb. lamb dresses at 56%.

I.e. Base Price (DW): $140.43 / 0.56 = $250.77 / 100 lbs. DW

3) Using the base price / 100 lb DW, as calculated in point 2, over a 2-month period, the rolling average DW price is calculated. 

I.e. {$252.02 (February 2005) + $250.77 (March 2005)} / 2 = $251.39 / 100 lbs. DW

4) Differentials are added to or subtracted from this 2-month rolling average price depending on the month that the lambs are delivered (Table).   

I.e. For April the differential is $50.00, therefore the price would be: $251.39 + $50.00 = $301.39 / 100 lb. DW

5)The price / 100 lb. DW (calculated from step 4) is then converted to a price per lb.  This price is the basis on which lambs are paid for the following month, provided this price is within range and does not fall (a) below the floor price of $2.3809 / lb. DW or (b) above the ceiling price of $3.0476 / lb. DW.   

I.e. March price calculation = $301.39 / 100 lbs DW;
gives a Forward Contract price of $3.0139 / lb. DW for April.

(This price is within the range, and therefore remains the price for the following month.)

(a)  In the event that the calculated price is less than the floor price, producers will be paid the floor price of $2.3809 / lb. DW for the following month.

(b)  In the event that the calculated price is greater than the ceiling price, producers will be paid the ceiling price of $3.0476 / lb. DW for the following month.

6)     FC Producers are paid according to the dressed weight of the lambs and index values (see grading grid) of the carcass.  Licensing ($1.55) and forward contract fees ($4.75, includes grading fee) apply to each lamb (Note: taxes are applied, but not shown here). 

I.e. A ~100lb. lamb that dresses at 55 lbs. with a muscle score 4,3,3 (C) and a fat score of 15 mm would have an index score of 105%.  Payment on this lamb would be $167.75. {(55 lbs. x $3.01/lb DW x 105/100) - $1.55 - $4.75}